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Have you adopted the Charity Governance Code?

29 May 2019

I recently attended a seminar given by accountancy firm RSM who have conducted some research into the take up of the Charity Governance Code and the benefits of complying with it. The research, unsurprisingly perhaps, demonstrated a link between applying the Code and good governance and better reporting standards. The Code can be used as a tool to take a charity on a governance “journey”. It is deliberately aspirational but provides the building blocks towards high standards of governance through its seven key principles. There are two versions of the Code for large and small charities (annual income under £1m) and it is expected that the Code will be applied on a “apply or explain” basis.

Whilst not mandatory, it is clear that if a regulatory issue arises in a charity, the Commission will want to know whether the charity in question has adopted the Code. The Commission, you may recall, actually removed their previous guidance around good governance (CC10 The hallmarks of an effective charity) and instead encouraged charities to use the Code. The Code is due its first review in 2020 and it is likely that the Code will be developed to have more detail and emphasis on ethical principles, following the many safeguarding scandals that have rocked the sector since the Code was published in 2017. It is clear that charities find it easier to comply with some aspects of the Code, for example, principle 1 - Organisational purpose than others, which are a result of deep rooted issues that the sector faces, for example, diversity.

A few key findings from RSM’s research were as follows:

Larger charities were able to demonstrate their compliance most consistently, and within that group, medical charities came out on top. This may be because their sector is already heavily regulated and they are used to applying strict transparency practices/principles already. Often larger charities have more resources, both monetarily and in relation to human resources – to implement changes and comply. Perhaps unexpectedly, the sample revealed that smaller charities (£5-£9.9m income) outperformed medium sized charities (£10-19.9m) in code compliance. This could be because smaller charities can make changes more easily and are not held back by organisational barriers allowing them to be more agile and reactive. So, being a small charity is not a barrier to compliance with the Code, good governance and open/transparent reporting.

We recommend, when drafting or reviewing governing documents, that trustees should serve a maximum term (usually of 9 years) unless there is a compelling reason not to. This is to ensure turnover to bring fresh thinking and ideas to the charity and to prevent the charity’s strategy from becoming stagnant. This is also a requirement of the Code (at 5.7.4). RSM’s research found that at least 20% of trustees within the charities reviewed had exceeded that term. The Code makes it clear that a maximum term should be applied, and if charities really need to exceed this for good reason, a clear record of the reasons should be made.

Charities need to be clear around board review processes and staff remuneration levels. This is important for key stakeholders. The Code recommends that senior staff remuneration levels are included in the charity’s annual report (at 7.6.4).

Diversity (Principle 6) is an area which requires much improvement – this has been reported on widely by the third sector press. Charities need to avoid a knee-jerk reaction in trying to improve their records on diversity and instead understand why diversity is important and necessary and consider how they can genuinely commit to improving diversity through engagement across the charity. The Code requires charities to publish a diversity statement and these were only evident in 15% of charities in the study. The other weakest performing areas were Integrity (Principle 3) and Openness & Accountability (Principle 7) both of which should give cause for concern.

If you haven’t yet adopted the Code, there are clear governance benefits to doing so which can only be a good thing for your charity, its beneficiaries and stakeholders. The Charity Governance Code website has a diagnostic tool that we recommend as a good place to start. We also consider the Code within our Trustee Training Programme, see our website for details. The Charity Commission’s recent Statement of Strategic Intent sets out its core purpose and priorities for the five years to 2023. The core purpose is “to ensure charity can thrive and inspire trust so that people can improve lives and strengthen society” and this will inform everything that the Commission does. The Statement goes on to say that “a charity must be more than an organisation with worthy aims. It must be a living example of charitable purpose, charitable attitudes, and charitable behaviour” – adopting the Code can ensure that a charity lives up to its charitable purposes and the expectations of the Commission and the wider public.